The Royal Mail has hiked the cost of a first-class stamp by 14p to 60p, the biggest price rise for 37 years, in a move that pushes the organisation closer to privatisation and has triggered concerns over the impact on small businesses and elderly people.

Second-class prices also rose 14p to 50p in a package of increases announced immediately after the Royal Mail's regulator, Ofcom, warned that an explosion in text messages, emails and Facebook sign-ups over the past decade was threatening the postal network's financial viability.

The Royal Mail's chief executive, Moya Greene, said the state-owned business had no choice but to ramp up first-class prices by 30% and second-class by 39%, having seen its mail collection and delivery unit lose nearly £1bn in four years. Mail volumes have slumped by a quarter since 2006 to 59m letters and parcels a day.

"We know how hard it is for households and businesses when our economy is as tough as it is now," said Greene. "No one likes to raise prices in the current economic climate but, regretfully, we have no option." The price rises come into effect at the end of the month.

The Greeting Card Association said fewer envelopes could be hitting doormats next Christmas. "We think this could affect Christmas quite dramatically," said the GCA's chief executive, Sharon Little.

Ofcom paved the way for the price hikes on Tuesday morning by unveiling a new pricing regime for the Royal Mail, which could be sold or partially floated by the government next autumn. First-class prices will no longer be set by the regulator, Ofcom said, although it introduced a seven-year price cap of 55p for second-class stamps, index-linked to the consumer price index rate of inflation.

The government hopes would-be buyers of the Royal Mail will be more interested in the business once it shows signs of turning a profit, aided by higher stamp income. Greene said "all the necessary big steps" had been taken before a full or partial selloff in two years' time, with some analysts valuing the Royal Mail at £4bn.

"I do not think it impossible we can be in a deal mode in 2013. Personally I think it is more likely to be the first quarter of 2014," said Greene. The Post Office network will remain under state ownership.

The communications watchdog lifted price caps on first-class stamps after it admitted that the digital boom was making a universal postal service financially untenable. The cost of posting large letters will also increase from 75p to 90p for first-class and from 58p to 69p for second-class, while discounted stamps will be offered to some low-income houses this Christmas.

Ofcom's director of competition, Stuart McIntosh, said the deregulation of first-class stamps was necessary to guarantee the universal postal service provision, a Brussels-enforced mandate that requires the delivery of a postal service to any address in the country six days a week. "The mail services that we have benefited from over decades and centuries are fundamentally at risk."

He said competition from mobile phones, email and other postal providers such as TNT Post UK would help prevent the Royal Mail from abusing deregulation, while the second-class stamp ceiling would also hold down first-class tariffs. "If they set the price very high relative to second-class stamps many people will move from first to second class. This is a constraint on their ability to raise their prices. Also, if they increase their prices it will make the services of competitors more attractive."

Prior to Tuesday's announcement, the biggest price increases were in 1975 when first and second class costs rose by 55% and 58% respectively.

The Royal Mail will go through a series of symbolic changes this weekend, formally separating from the Post Office network and handing its £9.5bn pension deficit to the state. Both moves, along with price deregulation, pave the way for a flotation.

In the Post Office network's rural heartlands, there was dismay. In Chipping Sodbury, 79-year-old June Kent popped her three neatly addressed envelopes into the red box outside the post office and bemoaned the price rise. "I'm horrified," she said. "I use email more than the post now but I still like to send and receive letters. I shall have to think twice now every time I send a letter. It seems such a lot of money, especially as I can remember when a stamp was tuppence ha'penny."

Her friend, a garden designer, Jill Fenwick, arrived at the bustling post office in south Gloucestershire to stockpile 30 first and 30 second-class stamps. "That should last me to Christmas. By then I'll have forgotten about the increase," she said.

But Fenwick does feel the price hike will have a lasting impact. "It's going to affect the poor old ladies when they come to send their birthday or Christmas cards. Will it mean the post offices close down and the greetings card people seeing their profits drop? It seems very sad." Gillian Whitfield, who has just sent a letter off to her son, said she would aim to start sending only second-class letters. "I use -mail a lot but you have to use stamps for Christmas and birthday cards. I'll have to be really organised."

The shadow postal affairs minister, Ian Murray, said the price increase would hit millions of people, including the elderly, small businesses and charities. According to Ofcom, households spend 50p a week on postal services.

However, businesses, charities and government departments are the Royal Mail's most important customers. Social mail, from Christmas cards to wedding invitations, makes up less than 10% of its business and most of its revenue comes from companies such as banks and utility groups sending bills, statements and marketing material. The Forum of Private Business said the price increases would damage small businesses. Ofcom has also deregulated the prices that Royal Mail charges the likes of TNT Post UK, which sends the bills for the likes of BT and British Gas via Royal Mail depots and delivery staff, but the regulator warned that it will watch out for unfair prices. The Communication Workers Union, which represents 160,000 Royal Mail staff, said the increases were the inevitable consequence of the move towards privatisation.

Billy Hayes, general secretary of the union, said: "Those people who balk at the idea of stamp price rises should understand that it comes directly from government decisions to privatise this industry – just as we've seen massive price increases in train travel under privatisation." The department for business said: "Price rises are never welcome. However, ministers are clear that the top priority is to protect the universal service on which people rely."